Global supply chains won’t improve anytime soon

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By Inga Fechner, Rico Luman, Joanna Koning

World trade fell 0.2% in March, with imports from China down 12% and those from Eastern Europe’s CIS countries down 16.4%. With China’s zero Covid policy continuing into April and May, we do not expect trade the data is much better during these months. Although overall schedule reliability, tracked by Sea-Intelligence, improved slightly in February and March, we expect it to have slipped back in April, remaining overall well below 2021 levels.

April’s data should not only reflect the effects of the war in Ukraine, but also the lockdown in Shanghai, which is having a profound impact on the Chinese economy and the country’s logistics. Container loading leaving the Port of Shanghai has fallen quite sharply compared to the start of the year due to the lockdown, as measured by the Kiel Trade Indicator, as you can see in the chart below. And even if cargoes can be cleared, there are difficulties with inland connections; truckers sometimes get caught up in quarantine checks, for example.

Delays on the import side have accumulated, in particular. As manufacturers ramp up production, a wave of export containers can be expected. Therefore, we expect the effects of the lockdown to spill over to other parts of the world in the coming months, although the weekly shipping capacity offered has increased on the Asia-US sea route to meet a demand still relatively strong in the United States. Consequently, maritime tariffs will remain supported at high levels, with higher crude oil prices further weighing on transport costs. According to Xeneta, average fuel surcharges alone have increased by 50% on all commercial lines since the start of the year due to higher crude oil prices.

Shanghai container load departures plummeted due to lockdown

Shanghai container load departures plummeted due to lockdown

Kiel Trade Indicator

Shortages of inputs and labor compound the problem

Material and labor shortages also continue to hamper production and transportation. This adds to the existing hardware bottlenecks caused by the pandemic, while the sharp increase in prices makes it difficult for manufacturers to calculate accurately for this year and to commit to prices for delivery to customers much later. . More than 12% of goods are currently waiting on container ships in port areas around the world, up 1.2 percentage points from April, according to the Kiel Trade Indicator, most of them found in China. Scarcity persists in the current market environment, leading to lasting pressures. As a result, average transmission rates remain high, although spot rates have declined somewhat. This continues to contribute to higher prices for producers and consumers, in addition to high energy prices.

Despite weaker demand, the current order book is sufficient to keep supply chains under pressure throughout the year

Overall, we are still facing a problem of undercapacity, mainly on the supply side. Looking at the latest available trade and supply chain data, pressures remain at historically high levels and we do not expect supply chain disruptions to ease significantly this year given extremely volatile environment. Although weaker consumer demand from China due to lower growth expectations and Covid lockdowns, and from the EU due to eroding purchasing power, will ease some pressure on supply chains, industrial production is holding up well thanks to high backlogs due to shortages which is enough to keep supply chains tight throughout the year. We expect these headwinds to translate into trade growth of between 1% and 2%, in our base case.

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Editor’s note: The summary bullet points for this article were chosen by the Seeking Alpha editors.

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